Calculating the cost of SEO and ROI generation is indeed an arduous task to do. It is because firstly, there are many variable costs like content creation, link creation, and other optimization, etc. Secondly, the generated revenue from organic searches might not be that useful. And above that, calculating the revenue is tough because each business has a different revenue model. So, here we will talk about the kinds of revenue models that are available for calculating the SEO ROI.
Revenue Type 1: ‘One-time sales’ Businesses
This revenue model is considered to be one of the simplest forms of revenue model to calculate. Here, even one sales conversion will contribute to revenue that is generated through organic search traffic and SEO. But in this model, the calculation is not going to be based on one single sales conversion, but preferably it will depend on the customer’s lifetime value. The Customer lifetime value determines the revenue gathered through the customer’s relationship with the business.
There are 4 different variables to calculate Customer lifetime value:
- Average customer lifespan: It is about bringing an average number of years that a customer will purchase from the company. For example, a customer’s lifespan will be 5 years with a company that sells diapers.
- Average purchase value: It is about total revenue in a year of a business divided by the total number of purchases.
- Average purchase frequency: the number of total purchases divided by the new customers who made purchases simultaneously.
- Customer value: It is when the average purchase frequency is multiplied by the average purchase value. For example, buying a product at $100 two times makes it $200.
Therefore, the Customer Lifetime Value can be extracted by multiplying the average customer lifespan with customer value. For example, the Customer Lifetime Value will be $1000, when the customer’s lifespan is 5 years with $200 purchases.
This makes it easier to track the number of leads generated via organic search and the conversion rate generated through the leads. For instance, if the 100 leads are generated, and the conversion rate is 10% from those leads, the generated revenue is $10,000 (10x $1,000).
Revenue Type 2: ‘Lead-Based’ Businesses
The lead-based revenue model is a bit complex because the web activities and SEO performance won’t contribute straightforwardly to revenue generation. Now, this leaves us nowhere but to calculate every single web activity or action done by the visitors on the website. These actions will help in figuring out whether they are contributing to the revenue generation or not. This process is also termed as a marketing attribution model. Let’s study with an example to understand this model, i.e., let us consider that a brand generates 1,000 new organic leads through search. Now among those 1000 leads, only 200 converts in customers who purchase your products, so the conversion rate is 20%.
Now according to the revenue model discussed above, the Customer lifetime value for each of these 200 customers is $5,000, then the total sales are $100,000.
So, if the $100,000 is divided by $1000 people, which is the original lead number. Then the lead generated from SEO is $100
Revenue Type 3: Recurring Revenue Businesses
This revenue model is about considering the customer lifetime value differently, like, considering it through metrics like calling it monthly recurring revenue (MRR) and annual recurring revenue (ARR). So, putting an example, consider a company that holds an average MRR of $5,000 from one customer. So, the goal here is the creation of 100 new customers every year.
Therefore, with the help of organic search and content marketing, you can generate 50 leads every month. Then considering the figure of 50 leads per month, the lead to sale conversion rate is 30% that converts to 15 sales in a month. Therefore, following this example, the MRR per customer is $5,000/month, whereas the ARR per customer is $60,000 per year. With a conversion rate of lead to sales is 30%, and with a lead generation through SEO will be 50 per month.
So, if the lead generation through SEO will be 50 leads per month x 30%, which is equal to 15 sales per month, therefore 180 sales/year. And the value of additional ARR from 15 sales per month will be $900,000 a year.
So, to calculate your business’s return on investment, it is crucial to identify the revenue model of your business. Thus, having a clear understanding of the SEO campaign enrages your brand in making a correct decision making process.